February 5, 2021

Explainer: why is there a shortage of food quality containers around the world?

Mixed nuts, grains, almonds; Photo credit Usman Yousaf via Pixabay

Producers of all kinds of agricultural produce around the world may be finding it difficult to obtain a food quality container to ship their goods to export markets.

Unfortunately, this is a complex problem and, alas, it is one we have seen before. This time around though, it is also aggravated by the COVID crisis and it may well get worse.

What is a food grade container?

Let us tell you what it is not: it is not a “clean” container. A “clean” container is an ocean shipping box that is merely in good repair, clean and without infestation by pests. A “food” grade container is a box that is in a much greater state of cleanliness and repair. Shipping Australia has a fact sheet here.

Shippers and consignees need to remember that “clean” containers are not “food” containers. If someone needs a “food” container you must specifically ask the shipping line for a “food” container.

Zen and the Art of Empty Container Inventory Management

The owners of ocean shipping containers are, in the vast majority of cases, ocean shipping companies and they manage the inventory of boxes. As any manager of any kind of business which stocks any kind of inventory will tell you, inventory control is a vital function of the business. Get it wrong and Very Bad Things will ensue.

There are hundreds of millions of containers stacked, trucked or floating around the world at any given time. A good percentage of those are empty at any given time. A percentage of those are “clean” containers and a much smaller, tiny percentage of those at any given time are “food” quality containers.

Shuffling boxes around the world to meet demand for containerised freight carriage of grains is a major logistical task.

For the vast majority of time, in the vast majority of situations, the system works well.

But every now and then there is a demand-supply crunch.

Crunchy: the demand side of supply and demand

Demand for boxes is not even. At different times of the year, and in different parts of the year, demand for boxes will vary. For instance, in the run up to Christmas on the China-Australia trade, there is a demand for boxes. But that demand falls away at other times of the year.

We live on a four season planet so there are different seasons around the world for the growing, harvest and transport of agri-products. Wheat is generally harvested October to February. On the other side the of the planet, Mexican wheat is harvested April to July. Remember too, that there are different harvest seasons for different types of grain. Australian soybean is harvested between March and May; Mexican soybean between October and February. Seasonality makes for uneven demand.

Sometimes though, farming being farming, there is a massive production of a given crop. Look at this headline from 01 December 2020: “ABARES tips monster grain harvest of 51.5 million tonnes“, and also this one from 22 December 2020: “Grain harvest exceeds expectations in Australia“.

So the volume of crops in any given year is uncertain. The potential volume of grain crops for any near-future season is best estimated and forecast by growers, shippers and exporters. They are, after all, the experts in their businesses. So it is incumbent upon them to forecast their likely production, to estimate their likely transport demand, and to book “food” quality shipping containers in good time.

Producers booking in advance is particularly important when they know that there will be a big harvest. Regardless of the exact nature of the product in question, it is well-known that if there is a huge surge in demand, and that supply might not be able to keep up, then there could be a demand-induced crunch.

Crunchy: the supply side of supply and demand

Shipping lines only keep small volumes of “food” containers in stock at any given place at any given time. They generally tend to gear up for “food” containers in response to customer orders.

There’s a few reasons why.

Firstly, it’s the inventory management aspect. A box costs money in terms of the up-front purchase cost, along with costs for repair and maintenance. Non-moving boxes cost freight-earning opportunities. So shipping don’t keep large volumes of “food” quality boxes in stock at any given place. Unused boxes tend to be evacuated to where they are needed.

Meanwhile, as indicated above, other customers in other parts of the world at a variety of times will have a high demand for “food” boxes, or “clean” boxes that can be upgraded.

Thirdly, getting the right boxes to the right place at the right time so that they can be emptied, repaired, cleaned and upgraded to “food” quality takes time, effort and money. It costs about AUD$150 to $250 to upgrade a “clean” container into a “food” container and that’s not taking into account the cost of moving a box from one side of the planet to the other. That’s a big inventory cost when we’re talking about a fraction of hundreds of millions of containers in the world fleet.

Pinchy: quality standards and hard capacity limits

In this area of business, as in so many other areas of business, there are pinch-points. The standards for “food” quality containers are set in Australia by the Department of Agriculture, Water and the Environment. They are not mandatory or customisable standards – they have to be met. So that, again, imposes cost and delay pressures. This is not an argument to reduce standards – we’re just explaining why there’s a pinch-point.

Another serious pinch-point is the limit imposed by infrastructure capacity. Building infrastructure is time consuming and very, very, costly. So businesses tend to build only as much infrastructure as they need. For shipping lines, the infrastructure in this particular case is the container depot. Again, just like any other piece of infrastructure, it can only handle and process so many containers in a given duration of time. So if there is a surge in orders, even with the very best and sustained optimal efforts, the depot will only be able to process a given number of “clean” containers into “food” containers per day.

Infrastructure imposes a hard capacity limit and there’s little wiggle room to get around such limits during a temporary surge in demand.

Current events

Industry actors and regular readers of Shipping Australia media will be familiar with a great many of the COVID-induced issues in the international logistics industry.

A particularly useful Explainer is “Explainer: why has the inventory of empty shipping containers built up in Australia?” A lot of that article applies in this situation too. We don’t propose to regurgitate the whole Explainer, but we will repeat a few of the key points:

  • COVID has induced a massive boom in trade – which is helping to create a backlog of containers in Australia
  • There is often a less than one-for-one exchange of full containers imported into Australia compared to empty containers exported out of Australia – which is helping to create a backlog of containers in Australia
  • Contracts signed between shipping companies and container terminal operators often (for various reasons) specify how many containers can be lifted on/off a ship in a given port call. So, if a ship has an agreement for a 2,500 container exchange and it brings in 2,000 import containers then the stevedore will only load 500 export containers back onto the ship (although it should be noted stevedores are trying to work above these limits wherever possible) – which, again, is helping to create a backlog of containers in Australia.

So, in a nutshell, there are heaps of empty boxes stuck in places in Australia where nobody wants them to be. This will impact the availability of “food” grade containers because of general container inventory management issues and because “food” grade containers are created by upgrading some of the general container stock. But if the general containers aren’t in the right place to be upgraded, then that positioning issue helps to create a shortage of “food” grade containers.

A final point is that containerised grain is a very heavy cargo and that presents ship stability and safety issues.

Consider individual grains of, say, wheat. Those grains will settle closely to each other and although each individual grain is very light, together they can be very heavy. In comparison, consider, say, children’s toys. There is a lot of empty space inside a single package containing a child’s toy. So a container full of children’s toys is quite light compared to a container full of grain.

This is relevant for the safety of a ship. A container ship can only safely carry a given weight of cargo. If the cargo is too heavy, the ship settles down too low in the water which makes the ship vulnerable to being sunk or overturned by big waves.

Because agri-product containing containers are so heavy, a given ship can only carry a limited amount of that containerised product, which further explains why there may be a shortage of containerised agricultural ocean transport capacity at any given time.

Find out more:

If you want to know more about this topic, read our FAQ: “Food Quality Containers“.

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